Equities and the Economy:
ANOTHER amazingly lackluster day yesterday. The Dow fell 33 to 18,488, the S&P 500 lost 3 to 2,172 and the Nasdaq finished down 5 to 5,212. Volume continues to be anemic. It’s as if the market is in a state of suspended animation. Everyone’s waiting on Janet Yellen who will be speaking today at 9 AM Central looking for insight into monetary/interest rate policy. Investors and traders are betting their won’t be an interest rate increase in September. Fed funds futures indicate only a 24% chance of rates being raised at the September FOMC meeting and 50% before the end of the year.
Regarding economic data, as I mentioned in yesterday’s Blog, the Labor Department reported in its weekly first time unemployment claims were down 1,000 to 261,000 remaining at post-recession lows marking the 77th consecutive week of claims below 300,000 which is the longest streak since 1970. The Commerce Department yesterday reported the Durable Goods Orders rose 4.4% in July from June downwardly revised -4.2%. Economists were forecasting a rise of 3.2%. The subset non-defense capital goods, which is a proxy for business investment plans rising, rose 1.6% which was the largest increase since January. So this was a quite good report.
The only “blemish” economically was IHS Markit’s flash index of service sector activity which fell from 51.4 in July to 50.9 in August and below The Street’s forecast of 51.8. That being said, it’s still above 50 indicating expansion so that’s good.
The Dow was flat when I came into the office but Dr. Yellen has begun her talk and that talk is hawkish of interest rates and the Dow is flying high up a big 87 points.
After getting whacked on Wednesday oil prices bounced a bit yesterday with WTI closing up 56¢ at $47.33 and Brent adding 62¢ finishing at $49.67. If I must give a fundamental reason for the “bump” it was a report yesterday that Iran’s oil minister will attend next month’s OPEC meeting in Algiers with the topic of production freezes. The situation is always “fluid” with OPEC and this morning water may have just been thrown on the bulls hopes for a freeze. Today the Saudi Oil Minister, Khalid Al-Falih, was quoted today as saying the “market is moving in the right direction” in terms of oil prices and that Saudi Arabia doesn’t “believe that any significant intervention in the market is necessary other than to allow the forces of supply and demand” to tighten the market. In addition, Iranian officials said today they should be producing more because their output is still about 250,000 bpd less than it was exporting prior to the sanctions with the pre-sanction level their target.
All that doesn’t appear to matter this morning for WTI is up 38¢ and that is a result of the move up in stock prices.
Courtesy of MDA Information Systems LLC
Natural gas prices extended their rally yesterday posting a 5.0¢ gain closing at $2.846. The EIA released its weekly natural gas storage report and it was definitely bullish. The agency reported an anemic injection of 11 Bcf. Putting this in perspective, last year for this week we had a 63 Bcf injection and the 5 year average is an injection of 66 Bcf. As has been occurring all summer, the surplus to last year and the 5 year average continues to shrink with the former now at 275 Bcf, 16%, and the latter 350 Bcf, 12%. This trend will continue through the remainder of the injection season which ends October 31st. It has to. We don’t have the storage capacity.
Natty prices are now up nearly 35¢ over the past 2 weeks and trading at a 3 week high just above $2.850. Forecast for hot weather in the eastern U.S. with the associated elevated cooling demand have boosted prices of late. Although the weather forecast remains quite bullish for the next two weeks traders are taking the morning off with natty literally flat to yesterday’s close.
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